US Treasury Secretary Scott Bessent Talks US-China Agreement
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Here's the latest this morning. The US and China agreeing to a 90-day cooling-off period. The US reducing its levies on Chinese imports from 145% to 30, while China cuts duties on US goods from 125% to 10. Joining us now to discuss the Treasury Secretary Scott Besson, a driving force behind trade talks in Geneva over the weekend. Mr. Secretary, welcome back to Bloomberg Surveillance, sir. It's good to see you.

Good afternoon from Geneva, Jonathan. Great to catch up as always, sir. Let's get into these talks over the weekend. One standout line for me and for many others was the line that the differences between the two sides weren't as large as we thought they would be. What were those differences, sir, and why were they smaller than you expected?

Well, I think Jonathan, what's important to know is for the tariff program, we had a plan, we had a process, but we did not have a mechanism for engaging with the Chinese. So China was the only

country who escalated their tariffs in response to our reciprocal tariff level. So that resulted in an unfortunate escalation. So we now have a mechanism to deal with that. Neither side wants a generalized decoupling. The U.S. is going to do a strategic decoupling in terms of the

Items that we discovered during COVID were of national security interest, whether it's semiconductors, medicine, steel. So we still have generalized tariffs on some of those. Both sides agreed we do not want a generalized decoupling.

These things take time, as you know, sir. We've got 90 days now to work with. Last time around it took 18 months to reach an agreement on purchase agreements. I think you yourself have said in the past that it can take two to three years to have a full comprehensive trade agreement with the country between the US and China. What do you think is achievable, sir, over the next 90 days?

Well, Jonathan, we're going to see. But what has to happen is it has to be fair for the American people. But in January 2020, President Trump produced a template. We had an excellent trade agreement.

agreement with China and the Biden administration chose not to enforce it. The Chinese delegation basically told us that once President Biden came into office, they just ignored their obligations. So we all already have a large framework. The other thing to remember here, Jonathan, is that this is a pause down to 10%.

The April 2nd level for China is 34%. So we will be working to see where their final reciprocal number ends up. And the negotiations are a combination of tariffs.

tariffs, non-tariff trade barriers, currency manipulation and subsidies of labor and capital. Just to build on that as I listen to you, do you consider the new levels as a ceiling or a floor? Well, it's obviously a floor.

They are now with everyone else who did not retaliate. So the levels have come down to the pause level. And what I would say is 34, which is their assigned April 2nd level, would be a ceiling, which is what I went out and told people on April 2nd, which is why I was surprised market participants panicked because we had capped.

We had kept the upside for every country and if they didn't retaliate. So this unfortunate turn of events happened because of retaliation, but now we have the

a process in place to avoid escalation like that again. Secretary Besson, just to build on that, are you saying that tariff rates will only go up from here if this really is a floor of 10% on the Chinese side and 30% on the U.S. side? I'm not saying that they're going to go up, but it would be implausible that they would go below 10%.

One thing that you've been talking about is a generalized decoupling is something that's not necessarily in the interest of either side, and neither side wants that. What about a strategic decoupling? What is the appropriate rate of tariffs that could potentially cause some sort of strategic decoupling in the sectors that you are talking about? Well, look, bringing back our strategic decoupling,

that our important strategic industries can be a result of tariffs, but it's also a result of national will. So this administration is running full speed to make sure that what we saw during COVID never happens again.

So it's a combination of, it can be tariffs, but again, it is the administration moving as quickly as possible to make sure that we are self-sufficient in the strategic industries. I think that's completely understandable from the United States side. And I wonder, Mr. Secretary, whether the Chinese understood that. Did you get the sense they do understand that that will be the road forward for the United States?

Well, I think they understand that. And I think they understand that we are focused on fair trade, that this gigantic

deficit that we have with them that it didn't happen last year. It didn't happen the year before. It's happened over decades and that this happened, excuse me, has to be remedied. The China shock gutted our manufacturing sector and we want to bring that back. On the other side, party chair Xi has said that he would like to increase consumption, but

To date, the Chinese have just increased manufacturing. So we would like to see them increase consumption. We would like to see them open their market to American products. So there are two ways to rebalance. One is fewer Chinese goods in the U.S. market.

The other is more American goods in the Chinese market. And my guess is that the answer is somewhere in between. Some of this, of course, takes us back to the purchase agreements of the first term of the president. Is it different this time around? Is it as simple as just revisiting those purchase agreements? Or do you see additional sectors being targeted? Jonathan, I think everything's on the table, but the...

the phase one purchase agreements is a very good roadmap because I will point out that during 2020, China met their obligations under that agreement. It was only under President Biden where they neglected them. So we are starting there and

Look, the world has changed, products have changed, product mix has changed. So I think everything's on the table. But the main thing here is we have to have a fair deal for the American people. And keep in mind, too, that we also have 20 percent fentanyl tariffs on. So we are at for 2025.

We have put on 30% tariffs. They have put on 10. And my economic observation is that businesses just need time to calibrate. That we saw approximately 20% tariffs from President Trump's first term.

Business is calibrated. Supply chains moved. We have seen 20% tariffs President Trump put on in February due to the fentanyl crisis.

calibration, very little disruption and now a 10 percent additional tariff should mean very little disruption. Mr. Secretary, a lot of people are wondering what caused the softening in tone. The reason for both sides to come together and be able to have this kind of negotiation and chart a path forward where there will be further negotiations in the near term. What's your interpretation of what caused both sides to come to the table?

Well, I think that the two levels on the reciprocal tariffs, when they both ratcheted up to 125, caused the equivalent of an embargo. And that wasn't good for either side. We're the deficit country, so less bad for us.

I think there was the unintended consequence of this very fast ratchet. And so now both sides are at 10. We will be moving forward with a 90-day pause. And the important thing to remember is that we can always go back to the April 2nd level. But my sense is we had very good discussions. My counterpart...

was very firm but very engaged and I think we have set the stage for meaningful discussions. Mr. Secretary, is there already a scheduled date for Xi Jinping and President Trump to meet in person at any point in the near term? Do you think that that is something in the cards as part of these negotiations?

I think that there would be a phone call before a meeting and there's nothing on the calendar but I could imagine that that could happen in the coming weeks or months. Going into the meeting as you know the president put out a social media post he referred to you as Scotty B. I won't go there we will keep using Mr. Secretary and he said you could go as low as 80. Can you share with us how we went from say 80 down to 30? Where did that number come from sir?

I think that in the president's mind, 80 was a number that did not cause an embargo. So we could still be at 80 and have trade flowing, but we were able to both move down by 115%,

And Jonathan, I think the other important thing here is I think this is the first time that the Chinese have addressed one of the president's real priorities, which is ending this fentanyl crisis in the United States. So they brought their trade team and they brought a vice minister for state security who met with our national security team. It was a separate meeting and they had a very robust and detailed discussion on

ways to stop the transport of precursor drugs from China to North America that ends up in the hands of the cartels that is then killing several hundred thousand Americans a year. So I'm very optimistic that President Trump

We have solved part of the fentanyl crisis by securing the border, and I think this is the next step on that. So if over the coming months we were to see excellent engagement from the Chinese and solutions towards solving the fentanyl crisis, I think we could see some amount of the fentanyl tariffs perhaps come off, but that is going to take actions from them. What kind of action specifically, sir?

Well, we can see where these precursor drugs are coming from. At Treasury, our financial criminal enforcement network has very good visibility into international finance. We can see these Chinese companies that are selling the equipment for making the pills, transferring the precursor drugs to the cartels.

U.S. Treasury has declared the Mexican cartels foreign terrorist organizations. So working with Chinese leadership to stop this would be a very tangible symbol. In China, the narcotics distribution is punishable by death. We're not pushing for that necessarily, but we are pushing for very, very strict enforcement

similar to what they do at home. Mr. Secretary, I imagine you're incredibly tired and a lot of people are very excited to see you taking the lead in these discussions, certainly in the market. Are you going to be taking the lead going forward with other difficult negotiations around the world with different trading partners? I've been involved in most of the Asia negotiations. We had a very

Good negotiation with or we've had two rounds of negotiations with Japan. I've been involved with Korea. I've met with Vietnam and also Indonesia. So my focus has been on the Asia region thus far. And then the trade team had a great victory with the UK, the Philippines.

putting together the contours of the first trade deal. The other thing I want to say too is my partner here in Geneva, Ambassador Greer, was an incredible asset. He has years of experience, a broad

and deep knowledge of trade negotiation, of the numbers and the nuance, and we would not be here today without Ambassador Greer. Mr. Secretary, just before you go, you've promised us a lot of time. We've used up most of it already. Just a final question. What does victory look like for you in six months' time when we get to year-end? And I know it's frustrated you that we've only been talking about trade, that we haven't focused on the full policy platform. Where do you want to be by year-end?

Well, look, Jonathan, this administration is doing peace deal, trade deal, tax deal. I try to stay mostly, as you know, in my econ lane. So from that lane, victory to me looks like the three-legged stool that really are the three parts of our program really kicking in. So we will have most of the trade and tariffs settled.

The tax bill is moving along very well, better than I could have imagined. Speaker Johnson, Leader Thune are doing an incredible job with President Trump's leadership. So we will have tax done. And then the final piece that is longer lagged, but perhaps the most important, is deregulation. And deregulation, we are deregulating across all

all industries every day. President Trump is committed to for every new regulation, 10 comes off the books. And deregulations should start kicking in in the third and the fourth quarters. So tax, transportation,

trade and deregulation all coming together at the end of the year I think it's going to be very powerful for President Trump's economic agenda. Mr. Treasury Secretary Scott Besson, we appreciate your time sir. From Geneva,

Very generous with your time. Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com.

There's no business like small business. Hiscox Small Business Insurance. You're listening to an iHeart Podcast. ♪